Sorting out VAT can tend to leave some people a little flat. That’s why HMRC introduced the VAT Flat Rate Scheme. It is intended to simplify the VAT system, making the bookkeeping easier for those registered, such that they can concentrate on their business activities.
What is it?
Ordinarily, one would charge 20% VAT on sales, and remit this to HMRC net of the 20% VAT paid on certain purchases. The Flat Rate Scheme instead allows you to remit a simple flat rate % of your turnover to HMRC (ignoring purchases). The % differs from industry-to-industry, however in order to entice business to use the scheme most industries have a rate of less than 20%. For example, the publishing industry has a Flat Rate percentage of 11% (see here for each industry).
How does it work?
When you make a sale, you continue to charge 20% VAT – no change here. However, when you complete your VAT return you multiply your gross turnover by your industry percentage, and remit that number to HMRC.
You can’t claim the VAT on purchases, with some exception for one-off capital purchases of over £2,000.
Join if your turnover is less than £150,000, and you can stay in the scheme until your turnover reaches £230,000.
What else to consider
Business with high turnover and little-to-no VAT purchases will consider the flat rate scheme.
You would not want to join if you make a lot of VAT-exempt sales, or if you have a high level of VAT purchases.
You receive an additional 1% discount in your first year in the scheme.
Have more questions? Please get in touch firstname.lastname@example.org